What is a Sin Tax?

What is a sin tax? Sin tax, as it name suggests, is a tax levied on products or activities, which are considered sinful or harmful and considered as objects of social disapproval, such as liquor, tobacco and gambling. Sin tax or sometimes called sumptuary tax or sumptuary law is meant to reduce the consumption of those products or services by taxing them, aside from the common sales tax, to make them more expensive, less affordable and less accessible by consumers. However, this goal is often not achieved, particularly in the Philippines were the lower class and even the minors can still have access of these kind of goods, such as cigarettes and alcohol. The country has already enacted Republic Act 9334 otherwise known as the “Sin Tax Law of 2004” or the law on excise taxes on alcohol and tobacco products in December 2004.

History of Sin Tax

Sin taxes have been around for a long time. In the early 1500, Pope Leo X underwrote his lavish spending in part by taxing registered prostitutes. Two centuries later, Peter the Great preyed on Russian vanity by charging men who grew beards. During the presidency of George Washington in the 1790s, the Whiskey Rebellion or Whiskey Insurrection arose from an excise tax levied on whiskey, which was part of treasury secretary Alexander Hamilton’s program to fund the national debt. After the American civil war, the US also imposed taxes on cigars, manufactured tobacco, beer, wine and even on playing cards. In 2009, President Obama proposed a sin tax on sodas to fund his proposed health care.

Pros and cons of Sin Tax

There have been supports and oppositions in the imposition of sin taxes on particular goods and services. The following are the pros and cons of sin tax.

Advantages:

* It discourages consumption of products which are detrimental to health, such as cigarettes, alcohol and even sodas and junk foods, thereby creating a healthier society.

* It also discourages involvement in morally harmful activities, such as gambling and prostitution.

* It raises the internal revenue of the government, which can be used for funding its various programs (e.g., healthcare and infrastructure) or payment of its national debt.

Disadvantages:

* It can trigger rampant smuggling and black markets because of the consequential high selling prices of the taxed goods or activities.

* Since sin taxes are normally regressive in nature (i.e., the amount of tax is the same for both high-quality and low-quality products) the lower class will only be the ones who will be affected and not the upper class of the society.

* Sin taxes may cause particular businesses to incur losses, which may result to more job layoffs.

Final thoughts

Although sin taxes can benefit a nation or state from the increase of its tax revenue, political leaders should also be wise and prudent in determining what to tax and how much should be taxed. Since sin tax is based on the principle of charging sinners, this should be imposed equally and proportionately to all people who are committing these sins. This burden should not only land effectively on the poor, but also on wealthy people. And who knows who really commits a sin? Moderate drinking of wine or drinking a glass of beer everyday is not even considered a sin. Nevertheless, the politicians are taxing us a sin tax for that.

Victorino Abrugar is a retired CPA practitioner, a blogger, speaker, and an entrepreneur. He's the CEO of Optixor, Inc., a digital marketing company based in the Philippines. Follow him on Twitter at @viclogic.

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1 Comment

The way I saw it is that, the objectives of these sin taxes should be coupled with a proper implementation of other related laws. For example, cigarettes are subject to sin taxes because of health hazards connected to it, but try to look around on passenger jeepneys and other public utilities where drivers and passengers are smoking during the trip without even being called-up its attention by the road authorities. It is so annoying to have a smoking companion, but, sometimes you have no choice but just to hold breathe to your limits or just halt and go for a ride in other utilities to free yourself.In sum, achieving the purpose would be a cooperation of related enforcements.

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